Wednesday, February 13, 2013

Apple says it extended to Nokia only a 'provisional' patent license for a limited 'standstill' period

Yesterday Apple filed its opening brief in the appeal of Judge Lucy Koh's denial of a permanent injunction against multiple Samsung products. It finally became accessible over the Internet a couple of hours ago.

This is a strategically very important appeal in its own right. The issue at stake here is fundamental. It's about nothing less than the ability of Apple and other patent holders to win permanent injunctions in the United States against direct competitors infringing some of their patents. As a byproduct the appeal brief also reveals, for the first time ever, the nature of the June 2011 settlement between Apple and Nokia:

"And in any event, the Nokia and HTC licenses are quite limited. The Nokia agreement was merely a 'provisional license' for a limited 'standstill' period [...] These limited terms are consistent with Apple's desire to prevent others
from using its unique user experience patents without restriction."

While most of the HTC license agreement (almost everything except for the financial terms) is known, the scope of the Apple-Nokia deal had been a mystery for almost two years. It's still not perfectly clear how "provisional" a license it constitutes, and how limited the "standstill" period is. But Apple wouldn't be using this terminology if the scope of the Nokia deal was comparable to that of the HTC license.

The limitations of the license probably don't affect Nokia's business in any way, at least at this stage. Nokia's smartphone operating system is Windows Phone, so any intellectual property issues would have to be (and, I presume, would be amicably) resolved between Apple and Microsoft. That said, the peace that Apple and Nokia made in 2011 could be more limited and possibly more fragile and short-lived than it appeared at the time.

Apple's outbound patent licensing to such companies as IBM, Nokia and HTC plays a role in the Apple-Samsung injunction context only because Judge Koh said in her order denying an injunction that Apple's willingness to license its patents weighed against an injunction, as it indicates that its patents are not "priceless" and "off limits". In its appeal brief Apple calls this "a legally erroneous standard that [the Federal Circuit] has neve required" and also alleges a "misunderstanding of the licensing evidence, which makes clear that Apple would never license the patents protecting Apple's unique user experience to its primary competitor".

Here's the appeal brief, and you can find some more observations further below:

Apple's position on the "causal nexus" requirement is that it's "unjustified and unnecessary", but "[e]ven if there is a causal nexus requirement to obtain permanent injunctive relief, it cannot operate as rigidly as the district court applied it here". I also felt that Judge Koh applied the "causal nexus" requirement extremely rigidly -- so rigidly that injunctions would effectively become unavailable in cases targeting multifunctional devices such as smartphones and tablet computers. Apple had shown that certain product characteristics such as ease of use drive demand, but Judge Koh wanted all of this in a much more granular form. Apple describes the problem and the consequences of a standard that is impossible to meet:

"Consumer preferences are often not discretely discernible, and the causal nexus requirement prevents injunctions in cases where a patent covers technology that unquestionably enhances the value or improves the product even though it does not form the sole basis for consumer demand. For instance, a patentee who developed an innovative safety device for cars that dramatically reduces accident fatalities would be unable to prevent others from copying it, since several other more prominent features of a car drive consumer demand."

I like that example. And I also like the fact that Apple emphasizes the wiggle room the courts have in ordering injunctions that enable designarounds (as opposed to simply rejecting an injunction request as overly broad:

"[I]n the permanent injunction context, courts can exercise their considerable discretion to delay enforcement until the defendant has time to effectuate the requisite design-arounds in situations where it would be inequitable to require immediate compliance. [...] A court may therefore rely on the flexibility of permanent injunctive relief to strike the proper balance between the patentee's right to exclude others from implementing and profiting from the infringing features and the public's interest in the overall device. In this case, that balance tips decidedly in favor of an immediate injunction because Samsung's claim that it has already designed around Apple’s patents eliminates any argument from Samsung that an injunction at this point would allow Apple to exclude more than its inventive contribution.

This flexible approach to permanent injunctions is entirely consistent with the closely-related relationship between the entire market value rule and reasonable
royalty damages. To recover a reasonable royalty based on the entire value of an accused product, the patentee must show--as with the causal nexus requirement--that the patent either claims the entire product or else a smaller feature that drives demand for the entire product. [...] But the failure to prove that the patented feature 'drives demand' does not mean that the patentee gets no damages at all; it simply means that the patentee must apportion part of the entire product's value to the patented feature, so that the patentee does not recover more than the value of what has been invented. [...] [T]he much simpler solution is to allow courts to exercise their considerable discretion to sculpt injunctions so as to permit defendants to implement design-arounds, which would--like the entire market value rule--prevent the patentee from reaping a windfall without denying relief entirely."

The above shows that Apple wants to maintain product differentiation and defend its intellectual property but is not pursuing thermonuclear destruction.

There's so much more in the brief that I'd like to discuss, but I wanted to focus on a few key observations at this point. Unless Apple and Samsung settle soon, this process is going to continue for some more time, so there will be opportunities to talk about other issues raised by this brief.

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About Me

Florian Mueller is a former award-winning intellectual property activist with 25 years of software industry expertise spanning across different market segments (games, education, productivity and infrastructure software), diverse business models and a variety of technical and commercial areas of responsibility. In recent years, Florian advised a diversity of clients on the patent wars surrounding mobile devices, and on their economic and technical implications. (In order to avoid conflicts of interest, Florian does not hold or initiate transactions in any technology stocks or derivatives thereof.) He is now developing a game app for smartphones and tablet computers.